Not that it needs help given the state of the polls, but Labour has received some suggestions for quick and painless wins in the banking sector if it comes to power.
UK GDP growth forecasts are at an anaemic +0.7% in 2024 and +1.2% in 2025 respectively and with total UK small business lending still 8% below 2011 levels (when records began), economists at KBW suspected that politicians will look to the sector to start making a greater contribution to any economic re-boot.
“UK banks are set to deliver comfortable double-digit returns over the next two years, having seen almost no losses for Covid or the subsequent UK cost of living crisis,” says the Stifel subsidiary.
“Over the last 10 years, low-risk banking has become no-risk banking. Politicians have so far been clear that they are comfortable with the status quo and with Labour's shadow Chancellor Rachel Reeves a former Bank of England executive, we see little to suggest any appetite for a radical re-think.
“Special bank taxes, central bank deposit tiering, etc, have been dismissed for now (ex. Liberal and Reform), but retaining SME and Infrastructure support factors in Basel 3.1 with a view to encouraging bank lending feels like an easy win that will be supported by sector management (despite BoE opposition).
SME support factor was introduced in 2014 and reduces the regulatory capital required for certain SME lending by applying a factor of 0.7619, KBW notes.
“It has had little or no beneficial impact on UK SME lending which has grown +1% p.a. over the period (even with huge government Covid support) against nominal GDP +4% p.a.
“For the three major UK incumbents, it is a reasonably modest c.+0.1-0.2% to CET1 equivalent to an additional £3-400m of buybacks (Figure 1), albeit we recognise that the Bank of England may try and restrict such returns.
Close Bros is the standout potential beneficiary, with retention of the SME factor likely to reduce forecast RWAs [risk assets] by c.£700m which adds c.+0.9% to CET1 equivalent to c.£90m or c.60p a share (assuming Basel 3.1 base Standardised Corporate SME weighting also moves to 85%).
Infrastructure support factor - Introduced in 2019 with the aim of encouraging private and public investment in infrastructure projects, it reduces the regulatory capital requirement by 25% on certain projects.
"Banks have provided very limited disclosure, but we estimate that any benefit is likely to be trivial at c.£0.5bn-£1bn RWAs for the major UK incumbents".